There’s nothing radical about Corbynomics

Just did an interview about “Corbynomics”, what it means for business[1] and how radical he really is. My argument is that, economically, he isn’t all that radical – most of his ideas are either close to mainstream economics, or they’re politics as usual – at least if we step back from the usual amnesiac parochial Overton window.

Start with two of the biggest issues of recent years – austerity and immigration. Corbyn is anti-austerity and pro-immigration, and that’s pretty much in line with a lot of mainstream economics[2]. Even the IMF thinks that, while reducing the size of the state might be a good idea, a deep recession or fragile recovery is not necessarily the best time to do it. As Simon Wren-Lewis has argued better than I could, Britain in 2015 is a sort of weird austerity bandwagon where the nation’s political classes have decided that we must cut the deficit, without any real idea as to why (some of them probably don’t even know what the deficit is). You can make an argument that cutting the deficit reduces low probability, high magnitude risks, and that avoiding these is worth lower average performance, but that doesn’t seem to be what many politicians are saying.

Another issue where Corbyn goes against the zeitgeist but is economically unexceptional is immigration. Corbyn is pro-immigration, as are many mainstream economists (including The Economist). There’s little effect on low-paid native workers wages, and big gains for immigrants and the country as a whole. The Tories insane target to reduce net-immigration could only ever have been met by trying to make Britain a terrible place to live[3].

On the other hand, Corbyn favours renationalisation of various industries, including the post office, railways and utilities. It would be harder to find economists actively advocating this (and I’m not) but it’s not as radical as it might seem[4]. The industries concerned are natural monopolies where externalities (positive and negative) abound, and aren’t really privatized. Instead they were pseudo-privatized: we sold off (some) assets, and now spend a lot of time and effort subsidising and regulating them. The government decides how much utility companies invest, how much profit they make, and in the case of train companies, what prices they charge. You might argue that if we’re not going to actually privatize them, it’d be more transparent if they were 100% publicly owned. That doesn’t necessarily make it a good idea – it’d be a hassle and you can question whether it should be the top priority of anyone who claims to care about poverty, totemic though rail nationalisation is for the left.

On environmental economics his policies appear very mainstream, though not in a way that most economists like. He boasts about creating green jobs (which politicians don’t?), where most economists view jobs as a cost – if green energy really does “create” jobs, it’s probably inefficient. Most economists would argue that if we’re going to do something about climate change, we should probably tax carbon emissions[5]. Corbyn’s environmental manifesto does note that we have a somewhat perverse system of energy taxes and subsidies, but is silent about a uniform carbon tax. From a cursory look he seems to want to do what all politicians like doing about the environment: engage in lots of inefficient meddling.

On housing he claims there’s been a “free-market free-for-all”, yet there are few sectors where the market is less free. But then housing is not a policy area where sensible policies abound (exhibit A: “help to buy”). One interesting idea he proposes is a land value tax – something that’s viewed favourably by the Financial Times and The Economist, as well as many mainstream economists. Land is in fixed supply, can neither be created nor destroyed, much of its value depends on externalities from public infrastructure and you can’t easily take it to the Caymen Islands. This may be politically radical, but economically it’s fairly pedestrian.

All in all, much of Corbynomics seems fairly unexceptional – politics is, after all, the business of exaggerating small differences. If he were genuinely an economic radical, the media wouldn’t be obsessed with his singing.

[1] To deal briefly with the main subject of the interview, will Corbyn be good for business? Well, most governments outside North Korea are good for some businesses, and bad for others, so the question’s a hard one. As Janan Ganesh wrote in the Financial Times, Corbyn’s leadership may have the unintended consequence of freeing the Tories to move to the right. Whether moving further right is good for business depends a lot on what is “right”: low corporation taxes and free trade or illiberal social policy and more masochistic deficit fetishism?

[2] I’m not saying whether that’s good or bad. My argument is a positive not a normative one.

[3] Fortunately they missed the target by a country mile. One of those cases where failure is to be welcomed.

[4] I’m assuming here that compensation would be paid. Otherwise, that is radical, but probably also illegal.